As night occurs at different times around the world, night trading can refer to any of the three major currency markets –Asia, North America, Europe – depending on where you are located.
Due to the fact that the vast majority (80 per cent) of currency trading occurs on the North American and European markets, night trading typically refers to the Asian currency markets.
Asian currency traders will sometimes refer to themselves as night traders if they trade during the day in their home country as the hours between the US market closing and European markets opening is globally known as the after-hours or night session.
What are forex night trading hours?
As mentioned, night trading can refer to different markets depending on the trader, but we will look at the UK for this explanation. In the UK night trading would refer to trading that occurs on Asian markets between the close of US markets and the re-opening of European markets the following day.
During the UK summer time zone this would mean a start of 10 pm and close of 7 am.
When analysing overnight forex markets, it is useful to look at pairs which may not be as active in daytime trading, particularly Asian currency pairs such as the AUD/NZD or AUD/JPY. Below are a few factors to consider for each pair.
The AUD/NZD pair is interesting as both currencies are interconnected with commodity prices. Owing to their geography both countries are highly dependent on China purchasing commodities for their economic success, but they are not always viewed in a similar light. In this pair it is crucial to monitor global commodity prices but also the intergovernmental relations between both countries and China.
The AUD/JPY pair can provide an exciting amount of volatility in night trading. The yen is intricately tied to the US economy in manufacturing of technology and as a service provider. The yen will typically move in the same direction as the USD while the Australian economy is based on commodities and heavily influenced by Chinese economic data as well as the USD.
Why trade at night?
There are multiple reasons that trading at night can be beneficial. One factor to consider is that some of the best currency pairs to trade at night can have a smaller margin requirement than some of the pairs most active during North American and European sessions.
Strategies that involve capitalising on small price movements such as scalping and automatic trading programmes also perform better in Asian markets. As there is less activity there is less chance of missing a trade on a small fluctuation.
Those looking to employ longer term strategies may also benefit from early entry by trading at night.
If there is a major economic announcement coming out of the USA the following day that the trader feels will have a significant and long-term effect on a currency pair they can gain a first mover advantage by trading on Asian markets the night before.
Best currency pairs to trade at night
As it is possible to trade all currency pairs at night this question really comes down to the individual risk-tolerance of the trader and the strategy that you are using. Trading forex at night presents an excellent opportunity for both long-term investment strategies as well as short term strategies like scalping.
For beginners, the best forex pairs to trade at night are the major pairs. These pairs will tend to be less active and thus less volatile at night, particularly if they do not involve an Asian currency.
Examples of these types of cross-pairs would be the GBP/USD or USD/CAD. Experienced traders may seek out these currency pairs at night to employ a scalping strategy by capitalising on small fluctuations in price movements to make profits. Strategies which work better with less volatility, such as scalping or automatic trading programmes, will tend to favour night trading.
As these countries are operating at regular business hours during the UK night session, they will experience fluctuation based on economic news coming out of the region.
Trading at night can also allow you to profit from retracement of any gains or losses in currency pairs accumulated in the US and European markets as it is normal to see pull back of any large movements during night trading.
For example, if the EUR/USD pair ended the US session close to the resistance level, it is likely that there will be a correction in the Asian markets overnight.
While it is a general rule that Asian currency markets are less volatile than European and North American there are exceptions.
Major economic announcements scheduled in large Asian economies such as China or Australia can have a major impact on multiple currency pairs over the nighttime session.
Specifically, as the factory of the world, manufacturing data from China can impact all global currencies in either a positive or negative way. Central bank announcements from countries such as New Zealand or Japan can cause sudden fluctuations in the price.
The Australian dollar can be the best currency to trade at night but as a commodity currency requires careful review of the US dollar as almost all commodities are priced in USD.
There may also be unexpected movements based on interconnected geopolitical factors, such as the ongoing trade war between the US and China.
Tariff or sanction announcements during the day could decrease demand for Chinese manufacturing and concurrently the demand for Australian commodities by the Chinese, affecting currency pairs involving the AUD.
Traders should also be aware that many forex platforms will, by necessity, have larger buy-to-sell spreads on most currency pairs during the night. This is due to lower liquidity levels caused by a lower volume of transactions.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.